Proceedings for excess stock found at a business premise must be initiated under Sections 73/74 of the CGST Act, not under the confiscation provisions of Section 130.

Proceedings for excess stock found at a business premise must be initiated under Sections 73/74 of the CGST Act, not under the confiscation provisions of Section 130.

Issue

Whether the discovery of excess stock during a survey at a taxpayer’s registered business premises should trigger confiscation proceedings under Section 130 of the CGST Act, or demand and recovery proceedings under Sections 73 or 74.

Facts

• Following a survey at the assessee’s place of business, tax authorities alleged the discovery of excess stock.
• The authorities initiated proceedings under Section 130 (Confiscation of goods) read with Section 122 (Penalty), and subsequently passed an order confirming a demand for tax and penalty. The assessee’s first appeal against this order was also dismissed.
• The assessee contended that this entire course of action was legally incorrect. They argued that for an issue of excess stock, which relates to a potential tax liability, the proper legal recourse for the department was to initiate proceedings for the determination of tax under Section 73 (for non-fraud cases) or Section 74 (for fraud cases).

Decision

The High Court ruled in favour of the assessee.

• The court relied directly on a recent and binding judgment from the Supreme Court in the case of Additional Commissioner Grade-2 v. Vijay Trading Company.
• In light of the law settled by the Supreme Court on this specific issue, the High Court held that the orders passed by the tax authorities under Section 130 could not be sustained.
• The impugned orders were quashed. Furthermore, the court directed the authorities to refund any amount that the assessee had deposited, along with applicable interest.

Key Takeaways

1. Correct Legal Provision is Mandatory: Initiating proceedings under the correct section of the law is a fundamental requirement. A case initiated under an incorrect provision is legally invalid from the outset.
2. Excess Stock is a Tax Determination Matter: Finding excess stock at a business location is primarily an issue of potential tax evasion on unaccounted goods. The correct procedure is to assess the tax liability through the mechanisms provided in Sections 73 or 74 of the Act.
3. Section 130 has a Different Scope: Confiscation under Section 130 is a more severe measure intended for specific, egregious contraventions, often related to goods in transit or violations of specific conditions, not for discrepancies found during a routine survey of stock at a registered premise.
4. The Importance of Precedent: This case demonstrates the hierarchical nature of the judicial system. The High Court applied the law as definitively settled by the Supreme Court, ensuring consistency and predictability in legal interpretation.